Events that Shook the Market: An Insight from Nonlinear Serial Dependencies in Intraday Returns

37 Pages Posted: 7 Jul 2006

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories; University of Texas at Austin - Department of Government

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Date Written: June 28, 2006

Abstract

The present study proposes the use of nonlinear serial dependencies in the returns series for assessing market responses to new information. Unlike the standard event study methodology, this paper advocates a reserve form that let data analysis to first detect those periods with significant nonlinearity, and then identify whether their occurrences can be associated with major economic or political events. Our proposed research framework involves the application of the Hinich (1996) portmanteau bicorrelation test statistic in a moving time windows setting. Using the Malaysian stock market as a case study, our empirical application is able to detect not only the presence of nonlinear serial dependencies in the KLCI intraday ten-minute returns, but also the time periods when they occurred. The next stage of event-matching managed to identify major events that unsettled the local stock market in all cases except one. In particular, the Russian crisis, the unorthodox capital control measures and the Brazilian crisis are found to be responsible for the short burst of nonlinear behavior. However, the paper noted that factors that shook the market need not be news announcement in the media. It could be due to, among others, rumors, speculations, expectations, or worries prevail in the investment communities.

Keywords: Nonlinearity, Bicorrelation, Event study, Stock Market, Malaysia

JEL Classification: C49, G14, G15

Suggested Citation

Lim, Kian-Ping and Hinich, Melvin and Brooks, Robert Darren, Events that Shook the Market: An Insight from Nonlinear Serial Dependencies in Intraday Returns (June 28, 2006). Available at SSRN: https://ssrn.com/abstract=912603 or http://dx.doi.org/10.2139/ssrn.912603

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

Department of Economics
Faculty of Economics and Administration
Kuala Lumpur, 50603
Malaysia

Melvin Hinich

University of Texas at Austin - Applied Research Laboratories ( email )

P.O. Box 8029
Austin, TX 78713-8029
United States
512-835-3278 (Phone)

HOME PAGE: http://www.gov.utexas.edu/hinich

University of Texas at Austin - Department of Government ( email )

College of Liberal Arts
1 University Station A1800
Austin, TX 78712
United States

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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